News

A window into the U.S. economy

2011 was a tough year for the U.S. economy, with con­tinued high rates of unem­ploy­ment, surging food and gas prices and con­cern over strug­gling Euro­pean economies in coun­tries such as Greece and Italy. With an eye toward the future, we askedeco­nomics pro­fessor William Dickens to ana­lyze the U.S. eco­nomic out­look in 2012.

What are the biggest obstacles on the road to economic recovery in the U.S.?

There is recovery and then there is real recovery. Economic activity reached its low point in June 2009 and we have been in “recovery” since then. But this recovery hasn’t felt much like a recovery because unem­ploy­ment has remained stub­bornly high. Recently unem­ploy­ment has dropped a bit, and a few hun­dred thou­sand jobs have been added, but this hides the fact that job growth has been nowhere near large enough to accom­mo­date our growing population.

In short, we still need to do more to create jobs and put people back to work. Right now the out­look is for more of the same — mod­erate growth that keeps employ­ment from get­ting worse — but even if unem­ploy­ment declines some more, the frac­tion of the pop­u­la­tion working doesn’t seem likely to recover to its pre-​​recession levels any­time soon.

What signs have you seen that could indicate improvement in areas such as housing and job growth?

There were pos­i­tive signs ear­lier this year when it looked like we might be about to enter another reces­sion. The recovery had enough strength to pull through this period without another decline in eco­nomic activity, and job growth has returned to modest levels. The 200,000 jobs cre­ated in December was a plus, but to lower unem­ploy­ment we need to grow faster. There is some evi­dence that the housing market may have turned a corner, but it is still very badly depressed.

How intertwined is the U.S. economy with that of other nations? What effect will the global landscape have on economic recovery in the U.S. in 2012?

The biggest threat to our still fragile recovery comes from Europe. It seems likely that the EU will expe­ri­ence a reces­sion this year and that may spill over to the United States to some degree if Euro­peans stop buying from and trav­eling to this country.

A bigger threat is that Europe faces the pos­si­bility of a finan­cial crisis as bad or worse than the one that caused our cur­rent predica­ment. Despite new reg­u­la­tion, we have no idea to what extent our own banking system is at risk should an EU member gov­ern­ment default on its debt or a major Euro­pean bank fail. And should there be another finan­cial crisis, things could get much worse.